SUPPORTS ITEM NO. 5  
                                                      CS&B COMMITTEE AGENDA
                                                      NOVEMBER 7, 1996     


                              ADMINISTRATIVE REPORT


                                                    Date:  October 23, 1996


     TO:       Standing Committee on City Services and Budgets

     FROM:     Director of Finance

     SUBJECT:  1996 Operating Budget - September Review




     RECOMMENDATION

          A.   THAT the  proposed adjustments to the  1996 Operating Budget
               revenue and expenditure appropriations  as outlined in  this
               report be approved.

          B.   THAT any shortfall in  the 1996 Operating Budget at  the end
               of  the  year be  funded  first  from  the Capital  Reserve,
               including   any  deficiencies  in  the  Park  Board  revenue
               programs as contemplated in the Global Budget agreement.


     GENERAL MANAGER'S COMMENT

          The General Manager of  Corporate Services RECOMMENDS approval of
          A and B.


     COUNCIL POLICY

     Council's standing  instructions require that the  Director of Finance
     report  on the  status  of the  Operating  Budget as  of  June 30  and
     September 30 each year, along with recommendations for any appropriate
     adjustments.

     Council must approve transfers to and from reserve accounts.

     Under  provisions  of  the  Park  Board  global  budget,  Council  has
     authorized the  Director  of Finance  to maintain  a notional  Revenue
     Stabilization Account to balance the annual surpluses or deficits that
     result from seasonal or  weather-related factors affecting the revenue
     programs.


     PURPOSE

     In  accordance  with  Council's  standing  instructions,  this  report
     reviews the status of the  revenue and expenditure appropria-tions  in
     the  1996 Operating  Budget at  September 30,  1996 and  seeks Council
     approval to make adjustments that reflect our revised expectations.


     DISCUSSION

     September Budget Review  includes detailed reviews of both the revenue
     and expenditure appropriations in the Operating Budget.

     The  review of  revenue  appropriations  seeks  to identify  areas  of
     significant  variance that could impact on the budget position at year
     end.  Council will  note that the proposed adjustments  address issues
     that are  generally external in nature  or have arisen as  a result of
     experience or new information since the budget was approved in April.

     The adjustments to  the revenue appropriations are problematic in that
     they will not  only impact the 1996  budget, but will also have  to be
     accommodated  in  the  1997  Operating  Budget.    This  situation  is
     compounded by  the fact that our  only recourse in 1996  is to utilize
     one-time funding  from sources which  cannot be sustained  beyond this
     year.  This  means that in 1997, these revenue  budget reductions will
     have to be offset by other means.

     The  expenditure  side of  the  Operating  Budget  also requires  some
     adjustments.   While  it should  be noted  that most  departments have
     managed within the allocations provided by Council in April, there are
     some  factors  beyond  the  control of  the  departments  that require
     funding.


     A.   Adjustments To Revenues Appropriations

                                                             Revenue       
                                                        Increase/(Decrease)

     Receipt-in-lieu of taxes                               ($1,000,000)   

          As reported to Council in the June Budget Review report, the 1996
          Operating Budget will be impacted by reductions in grants-in-lieu
          of taxes that are being proposed by the Port of Vancouver and the
          CBC.


          The  Port  of   Vancouver  has  proposed  a   settlement  of  its
          outstanding grants-in-lieu of taxes for  the years 1985 to  1995.
          This settlement  involves a potential retroactive  payment by the
          City to  the corporation  of approximately  $2.1  million and  an
          ongoing annual  loss in grant revenue of up to $1.0 million.  The
          proposed settlement is  currently being reviewed  by City and  BC
          Assessment Authority staff prior to discussions taking place with
          the  Port Corporation.  While the outcome of these discussions is
          uncertain,  it is anticipated that  the cost to  the City in 1996
          will be in the order of $1.0 million.

          Council is also aware that the CBC has disputed the BC Assessment
          Authority valuation on  their regional  headquarters building  in
          Vancouver, and  the amount of the  grant due to the  City.  Staff
          have  had discussions with BCAA  and the corporation  and hope to
          report to Council in the near future on the issue.  The Operating
          Budget has already been adjusted to account for a portion of this
          potential  loss  in  revenue,  however,  further  reductions  are
          possible.

          It is  recommended that  the budget be  adjusted at this  time to
          provide a reserve for these potential revenue losses.


     By-Law Fines - Civilian Parking Enforcement              ($500,000)   

          This adjustment reflects  the net impact  of fewer tickets  being
          issued and a higher  number of outstanding and unpaid  tickets as
          compared with expectations earlier in the year.  In addition, the
          1996 budget anticipated that  new revenue generating initiatives,
          including  introduction of  the  Interactive Voice  Response  and
          Pre-Collection systems,  would be  operating earlier in  the year
          than  has proven possible.  We are also revising our expectations
          for these revenues for the 1997 Operating Budget.


     By-Law Fines - Police                                    ($300,000)   

          The  volume of municipal by-law  tickets issued by  the Police is
          lower than in  prior years, in  part as a result  of a change  in
          operating priorities  in the department,  and in part  because of
          legislative  changes   eliminating  the  option  of  a  municipal
          infraction  for moving violations.  An  adjustment of $300,000 is
          required to fund the shortfall.



     Sun Life - Additional Premium Refund                      $337,000    

          In  cases where premium costs  on life insurance  plans are lower
          than  actual claim  costs, the  City receives  a refund  from our
          group  insurance carrier, Sun Life.  The initial estimate for the
          employer's portion  of  the 1996  refund  was $200,000  and  this
          amount was included in the initial budget estimates. However, the
          actual  receipt is $537,000 and it is recommended that the excess
          of $337,000 be brought into the operating budget.


     Regional Dental Plan Pool - Refund                        $270,000    

          The City will end  its participation in the regional  dental plan
          pool  as  of December,  1996 and  an  accumulated net  surplus of
          $542,000 will be  returned to the  City.  It is  recommended that
          the employer's share of this refund be brought into the budget. 


          Net Decrease in Revenue Accounts                  ($1,193,000)   



     B.  Adjustment To Expenditures Appropriations

                                                             Expenditure   
                                                        Increase/(Decrease)

     Police Department                                         $500,000    

          The annual budget for Police sworn staff attempts to establish an
          adequate  provision for  salary  and benefit  costs, taking  into
          consideration turnover  and recruitment.   In recognition  of the
          large  number of officers who  were recruited in  the early 1970s
          and the potential for a  significant number retirements, the 1997
          budget included a higher estimate of turnover  savings than would
          otherwise have  been the case. Those early  estimates have proven
          to be  optimistic and  it  now appears  that the  budget will  be
          overspent.

          In response  to lower turnover,  the department  has reduced  the
          September 1996 new recruit  class to offset some of  these costs,
          however,  it is anticipated that  the Police salary accounts will
          be overspent by up to $500,000.



     Engineering - Solid Waste Disposal                        $130,000    

          The  Corporation  of  Delta has  advised  the  City  that it  has
          neglected to bill  the Vancouver Landfill for sewer  utility fees
          and as a  result this cost  has not been  included in the  City's
          1996 budget estimates.  The cost of this fee is about $400,000, a
          portion of which will be paid from commercial disposals and other
          landfill  users.   The  net  cost attributable  to  the Operating
          Budget is $130,000. 


     Queen Elizabeth Theatre                                   $340,000    

          Since the Operating  Budget estimates were developed early in the
          year, there have been several cancellations of tentative bookings
          at  the  civic  theatres.     The  Theatres  Board  has   reduced
          expenditure estimates  where possible,  however, there will  be a
          increase in the  net cost  to the Operating  Budget estimated  at
          $340,000.


     Debt Charges - Library Square Project                    ($770,000)   

          As reported  to Council, the  Library Square Capital  Project has
          been completed.  The  net funding shortfall of the  project is to
          be  financed  with a  loan from  the  Capital Financing  Fund and
          repaid through  a debt charge  provision in the  annual operating
          budget.  It had  been anticipated that these charges  would begin
          in  mid-1996, however, due to delays in closing out the accounts,
          the shortfall has  been financed for most of the  year out of the
          City's operating  reserves and  the debt charges  will not  start
          until  later in the year. As a  result, $770,000 is available for
          reallocation to other needs.


     Contingency Reserve                                       $490,000    

          The June Budget Review  Report considered by Council on  July 30,
          1996, indicated that Contingency Reserve had been fully committed
          and  there  were  no  funds  available  to  provide  for  further
          requests. However,  as there  was no identifiable  funding source
          available at that time,  and since several of the  approved items
          would  not require funding  allocations until later  in the year,
          adjustment to  Contingency  Reserve  was  deferred  to  September
          Budget Review. 


          It  is now  proposed  that $490,000  be allocated  to Contingency
          Reserve.   This additional allocation has  two components. First,
          $290,000 is provided to cover the known outstanding items to year
          end.  In addition, on September 26, 1996, Council  approved a 50%
          municipal  assist on regional  development cost charges.   If the
          regional DCC bylaw is approved before year-end, the City share of
          the  costs could  reach  $200,000, which  will  be provided  from
          Contingency Reserve.


          Net Increase in Expenditures                       $  690,000    

          TOTAL REQUIRED FUNDING                             $1,883,000    



     C.   Bringing The Budget Back Into Balance

     The Director  of Finance notes that  in past years, we  have generally
     been  able   to  accommodate   mid-year  budget  adjustments   through
     unexpected  increases in  revenues or  expenditure savings.   However,
     these sources are not available in 1996 and the recommended sources of
     funding  to return  the  budget  to  a  balanced  position  should  be
     considered extra-ordinary.  Moreover, they are not sustainable in  the
     1997  Operating Budget as offsets to structural changes in revenue and
     expenditure estimates.

     The following sources are recommended to offset the  funding shortfall
     identified  above and  to return  the Operating  Budget to  a balanced
     position.


     Liability Insurance Premium                               $610,000    

          The Insurance Reserve  currently meets the target  level that was
          established with the assistance  of an actuary when the  plan was
          established.    That  balance  reflects  the  accumulated  annual
          contributions  from  the  Operating  Budget, net  of  our  claims
          experience and administrative costs.

          The  City  has  commissioned   an  actuarial  assessment  of  the
          Insurance Reserve for report to Council in early 1997.  The level
          of  the annual contribution from  the budget will  be reviewed in
          that  report.   However, as  the original  target level  has been
          reached,  it  is proposed  that  the 1996  contribution  from the
          operating   budget,  after  adjusting  for  the  operating  costs
          associated with the reserve, be returned to the Operating Budget.


     Fringe Benefit Reserve                                  $1,273,000    

          Part of  the proceeds  of winding  down the  CUPE LTD  Trust were
          placed in  a  reserve which  can be  used to  pay fringe  benefit
          costs.  It  is recommended that  part of this balance  be brought
          into  the  Operating Budget  at this  time  to fund  CUPE benefit
          costs,  with the  balance to  be utilized  in the 1997  budget as
          originally planned.


          TOTAL SOURCES OF FUNDS                             $1,883,000    



     PARK BOARD GLOBAL BUDGET

     Review  of  the  Park Board  Global  Budget,  projected  to year  end,
     indicates a balanced  position.  Under the  global budget arrangement,
     any shortfalls in  the Park  Board revenue programs  are provided  for
     from  a Revenue Stabilization Fund.   Recommendation B  deals with the
     source for any necessary  funding in 1996.


     ALLOCATION OF CAPITAL RESERVE FUNDS

     When  capital  projects   funded  out  of  the  Operating  Budget  are
     completed,  variances  are funded  from  or  returned to  the  Capital
     Reserve.   As it is  not City  policy to maintain  other than  nominal
     balances  in the Capital Reserve, where they arise, these balances are
     usually  allocated to  needed  capital projects  in subsequent  annual
     Capital Budgets.

     Before  the end of 1996, two capital projects with surpluses totalling
     $1.9 million will be closed out to the Reserve, as follows: 

     Collingwood Neighbourhood House Project

          Collingwood Neighbourhood House was developed as part of the 1994
          - 1996 Capital Plan, with the City contributing $3.825 million to
          a  child  care   facility,  neighbourhood  house  and   community
          gymnasium. The  developer (VLC)  was responsible for  any capital
          costs required  in  addition  to the  City's  contribution.    At
          completion  of the  project, it  is anticipated  there will  be a
          surplus  in the budget  of approximately  $512,000 which  will be
          returned to the Capital Reserve.



     Commissioner Street Property - Insurance Settlement

          As  Council is aware,  the settlement of the  claim on the former
          Sterling Shipyard property resulted in a receipt of $1.4 million.
          Following through from  previous discussions with  Council, these
          funds can now be credited to the Capital Reserve.


     The balances from these  projects, together with funds  remaining from
     the  sale of  the  Oakridge Police  Station,  will leave  the  Capital
     Reserve  with funding estimated at  $3.5 million.   This balance would
     normally be allocated in the 1997 Capital Budget.

     However,  our  review of  the Operating  Budget  at September  30, has
     indicated areas  where additional funding may be  required before year
     end  and several  contingencies  that  should  be  provided  for.  For
     example, the budget  contains only a minimal amount of funding to deal
     with a heavy snowfall before year-end  and, in this event, our current
     balanced budget could be quickly forced into a deficit position.

     Normally, year-end surpluses  and deficits in the Operating Budget are
     transferred  to or taken from Revenue Surplus. However, the balance in
     Revenue Surplus is currently at an historically low level ($4 million)
     and  the Director  of  Finance  does  not  believe  that  any  further
     reductions  are appropriate.  Accordingly, it  is a  recommendation of
     this  report that any negative  variances realized at  the year-end be
     funded first from the Capital Reserve.

     Further,  in 1997,  Council  will be  asked  to provide  direction  to
     address  concerns about the current level of Revenue Fund reserves and
     how these  might be boosted  to provide  an adequate  cushion for  the
     contingencies which the City faces in the coming years.


     1997 OPERATING BUDGET PROJECTIONS

     Staff are completing a preliminary review of the 1997 Operating Budget
     which   indicates  that  there  are  likely  to  be  some  significant
     challenges  in meeting  Council's  taxation objectives  in the  coming
     year.     The   issue  of   the  structural   revenue  reductions   in
     payments-in-lieu  of taxes and  by-law fines were  reported earlier in
     this report.   In addition, it  is projected that  there will also  be
     reductions in short term interest earnings as a result of persistently
     lower rates in the financial markets.



     As  Council is aware, there is also considerable uncertainty about the
     status  of transfer payments from the Provincial Government.  The City
     currently  received approximately $23.2  million in payments including
     unconditional grants,  Canada Assistance  Plan support and  the Police
     Equalization grant.   Reductions  in these  payments  will clearly  be
     difficult to fit within the 1997 budget.

     Under normal circumstances, the projections would have been brought to
     Council during the early fall as the first step in developing the 1997
     Operating Budget.   This presentation also provides an opportunity for
     Council to provide  direction on policy issues  related to preparation
     of  the estimates.   However, with  the uncertainties  surrounding the
     1997  Operating Budget,  this process will  be delayed  until December
     when more  information is  available.  At  that time, the  new Council
     will  be able  to make  the necessary  policy decisions  to guide  the
     preparation of the 1997 Budget.


     CONCLUSION

     A  review of  the  1996  Operating Budget  as  of  September 30,  1996
     indicates that  several adjustments  are appropriate based  on changed
     expectations  since the budget was  approved in April.  In summary the
     changes are as follows:

          Revenue shortfalls                      $ 1,193,000
          Expenditure increases                       690,000
          Total funding requirements                1,883,000

          Funding sources                         ( 1,883,000)

          Net Budget Position                               0


     With these recommended adjustments, the 1996 Operating Budget  will be
     remain in balance.

     However,  even with  the balanced  position, the  Director of  Finance
     notes that some uncertainty remains in the 1996 budget and departments
     are  being  asked to  take  particular care  to  control discretionary
     expenditures to year-end.



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